How much will an e-commerce project cost? (lecture 7)

Written by: Jonathan Briggs

November 15, 2004 [7144 views]

There are no fixed methods of estimating how much a project should or will cost or what the return on investment will be. Most development companies use their experience to estimate a budget based either on the time the project will take and/or on the value the project will deliver for the client.

Here is a sample budget

1. Full analysis of requirements (Allow 5 person days) £3,250
2. Design based on 3rd party branding (Allow 10 days) 6,500
3. Navigation and site architecture (Allow 5 days) 3,250
4. Search engine optimisation planning (Allow 5 days) 3,250
5. Database design (Allow 4 days) 2,600
6. XHTML/CSS templates (Allow 5 days) 3,250
7. Shop development (Allow 5 days) 3,250
8. Technical integration (Allow 10 days) 6,500
9. Store management, CMS and reporting (Allow 10 days) 6,500
10. Email signup (Allow 1 day) 650
11. Accessibility testing (Allow 3 days) 1,950
12. Promotions design and logic (Allow 3 days) 1,950
13. Gift finder (Allow 4 days) 2,600
14. Contingency (10%) 4,550
15. Total £50,050

This budget should not be taken as a model for any particular project because no analysis of requirements, current design or understanding of the technology infrastructure has been conducted.

It does however provide a few pointers to some of the issues that should be considered in constructing a budget and provides an indication of the scale of some of the tasks involved.

• This sample budget is based on taking a serious client online (such as an existing medium sized retailer) and providing secure, scalable well designed B2C commerce.
• This budget is based on “person days” (10 person days might mean one person working for two weeks or 2 people working for one week). It is an estimate of effort rather than elapsed time.
• The budget has been prepared as an estimate for the client and should not be read as a “fixed cost quotation”. It is based on the understanding of the project at the time of estimating rather than on a requirements analysis. You will notice that the first item is for a full analysis. After this has been completed a more exact budget can be calculated. Clients are unlikely to accept a completely different scale however and so it is important to get the initial estimate approximately correct.
• Some companies might add a specific project management line to the budget; others will include a project management component (10-20%) in every item.
• This budget is based on a fixed daily cost of £650 per person day. Smaller companies might charge less than this (say £300) while consulting firms might charge much more (say £1200). Freelancers may be able to be even cheaper but remember that one person is unlikely to have all the skills needed to implement the project alone. Some companies will charge different day rates for different tasks; others will produce an average like this one with which to estimate costs.
• The budget reveals some of the ways in which the project will be implemented. A full proposal will have lots of extra detail including a list of all the assumptions being made. This sort of proposal is usually produced as a response to an invitation to tender.
• An estimate has been included for graphical design costs. Good design is a very subjective issue and many iterations may be necessary before the client is satisfied. It is easy for a developer to lose money on design unless careful control of time is exercised and the client charged an additional amount for going beyond the allocated time.
• This budget assumes that the branding for the client has already been defined and is being adapted for the web. Some projects will involve the development of an entirely new identity and these could be significantly more expensive.
• Some items are sometimes optional and can be discussed with the client and removed to lower the initial investment. Remember that many clients are expecting very low budgets. It is important to set out why each of the items is necessary. Your proposal needs to answer the question, why can’t I do this for £500?
• A company who have already implemented some of the technologies (or with a good knowledge of commercial software) will be able to complete on price and time. They will however need to recover the investment that they have made in building their technology/expertise and this may be reflected in a higher day-rate or additional days that “have already been worked”. Clients should be cautious of using developers who have never built a store like this before as they will be paying for the developers to learn their skills or of developers who feel convinced that they can alter an existing piece of software to achieve the client requirements.
• Integration costs in particular can vary widely and at least an initial understanding of the current system is needed to produce any sort of estimate. If the client has used a different developer to create their offline or instore systems then it may be necessary for them to modify (or add to) their system to permit the online system to access necessary data and communicate orders, availability, returns etc.
• These prices do not include VAT which must be charged by all but the smallest companies.
• No on-going support, maintenance or hosting is included in the above budget. Running a store is a complex matter and many companies spend at least as much in ongoing costs as in development. Of course many of these costs are internal; staff are needed to run the shop.
• No software licences are included in this budget. These can vary very widely and clients and developers need to consider very carefully whether they are going to use expensive CMS/Database products or free Open Source software. This is not a simple choice and will be influenced by levels of expertise.
• Other external costs (security certificates, connectivity, hardware) are also not included. This needs to be stated in the assumptions.
• It is common to add a contingency line to budgets to provide some “wiggle room” for changes that emerge during the design and production process. This is often 10% of the overall budget and it is not charged unless it is used.
• Costs can be reduced by “outsourcing” but only where the project is extremely tightly defined. Where design, development, integration and discussion/training with the client are all entwined it is unlikely that the spec can be defined sufficiently to make the cost savings worthwhile.
• Some companies will reduce their fees in return for a percentage of the revenue or profit made from the project. The terms of such an agreement need to be tightly defined to make sure that everyone is happy.

Recent comments:

What do you think?

Add your comments